2023 Regional Updates – North East Asia | FCI
Mackinac Bridge in Michigan
Latest News
2023 Regional Updates – North East Asia
2023 Regional Updates – North East Asia
2 October 2023

Every June, FCI publishes its Annual Review giving an overview of progress made by the world's biggest and most important factoring network. The Annual Review also presents FCI's annual figures as well as global factoring statistics. In this extract, we explore North Eastern Asia's Regional Updates, presented by Mr Lin Hui, Regional Director North East Asia.

2022 Figures

In 2022, China’s merchandise imports and exports set a new record at RMB 42 trillion, maintaining its position as the world's largest trader for six consecutive years. Despite China’s slower GDP growth of 3% in decades, the factoring and supply chain finance (SCF) markets in the Northeast Asia region continued to grow, contributing to a decent overall performance. International two-factor business in the region showed encouraging growth, with export factoring from China increasing by 288% and import factoring from Japan rising by 188%. This standardised two-factor model provides a solid foundation for nurturing a sustainable factoring market in the region. The potential for establishing a unified market based on a comprehensive two-factor model, encompassing both ‘forward’ and reverse factoring, as well as international and domestic transactions, warrants further exploration and investment.

Legal, Regulatory and Advocacy

Chinese governments have implemented favourable policies for SCF and are strengthening regulations to ensure orderly market development. Recently, the Central Bank released a draft of Local Financial Organisations Regulations for public consultation. This categorises non-bank commercial factoring companies as local financial organisations serving local enterprises. This has caused controversy as it restricts non-bank factoring companies from conducting business across provinces. Many commercial factoring companies argue that this would disrupt their business models and revenues, as they often rely on large corporations for reverse factoring and distributor financing, with clients dispersed across the country, unlike traditional factoring, which focuses more on local SMEs. While the final regulations are yet to be published, the policy direction is clear. Some believe it is opportune to introduce the FCI two-factor mechanism into China’s domestic factoring market, considering its benefits and potential impact.

Promotion and Awareness

Our meetings and events were significantly impacted by repeated COVID lockdowns and shifted almost entirely online. Digital tools have unprecedented relevance in a new reality of physical distancing. We held a regional networking meeting online in April, where digital transformation was discussed and received significant interest from members in the region. We had several online workshops to share some of the latest practices, giving participants new insights and inspiration. We remain committed to two-factor collaboration as the root of long-term prosperity for all our members and the FCI community. During the second quarter, we conducted a targeted survey and discussed the constraints on our members’ two-factor businesses. We encourage members to value the two-factor scheme as a fundamental norm. We work with members to address the shortcomings, improve effectiveness, and inspire them to participate in this network.

Membership Mobilisation

By the end of 2022, there were 74 members in the region: 38 in Mainland China, 9 in Hong Kong, 20 in Taiwan, three in Japan, two in Korea, and two in Mongolia, respectively. Banks account for 85% of the total number of members in the region. Except for two Japanese banks that adopt the subsidiary franchise model, the rest treat factoring and supply chain financing as products in their trade finance portfolios, needing more specialisation. The balance between scale and specialisation is the first issue that banks in the region face that must be addressed. Non-bank factoring companies are mainly from China. However, due to various factors, including foreign exchange restrictions, they can still not truly integrate into the FCI two-factor network and do business only on their terms. Under more regulatory pressure, many factoring companies opt out or transition to the fintech model. This sector is undergoing a complex realignment as the tide rises and falls.

Challenges

The main challenge for the region in 2022 comes from the virus. China’s Zero-Covid policy aimed at stopping the spread is the most stringent and long-lasting globally. At the end of 2022, China announced the removal of this policy. The supply chain and confidence in the market, disrupted by the three-year pandemic, will still take time to recover gradually. Geopolitics was a challenge in 2022, as the Russia-Ukraine war strengthened divisions and rivalries, and anti-globalisation forces became more powerful. The region is undergoing a restructuring of the supply chain landscape, which the globalisation process has gradually shaped over the decades. The region's factoring and SCF market environments are more complex and challenging than ever.

Outlook 2023

The year 2023 marks the start of the post-pandemic era and the 30th anniversary of factoring in China. We need to find a breakthrough path in the Chinese market for the region’s future and for the industry over the following decades. We must do two things right: first, help banks rediscover the importance of factoring in their transaction banking strategy and secure specialisation through organisational innovation. Second, a localisation strategy must be implemented as soon as possible. We must establish our local entity, create our community, and engage more local talent and practices to transform the local market. We must identify and solve problems locally, thus gathering new impetus to the global two-factor network. 

(Photo: © Sadik Boujaida)

Discover more

  • Find out more about the FCI Annual Review 2023 Edition by clicking here.
  • Join us in Marrakech to meet with the FCI membership & other industry players by clicking here